A state initiative to lower energy costs in Maine by boosting the region’s natural gas supply would cost consumers more than it would save them, according to a study commissioned by the state Public Utilities Commission.
The PUC hired a Boston-based consultant to conduct a cost-benefit analysis of the Maine Energy Cost Reduction Act, which was approved by the Maine Legislature in 2013 as part of an omnibus energy bill if certain conditions, including PUC approval, are met.
MECRA, as the initiative is known, is designed to lower energy costs for Maine consumers by having the state enter into contracts to purchase up to 200 million cubic feet per day of natural gas at a cost not to exceed $75 million annually. Ratepayers in Maine would foot the bill.
The idea behind the initiative is that increasing demand would prompt natural gas providers to improve pipeline capacity into New England, where the current infrastructure cannot meet the demand for natural gas on the coldest days.
The additional supply could be used for heating and to produce electricity in New England’s natural gas power plants, which sometimes go off line in the winter because of inadequate supply or prohibitively high gas prices.
The PUC is in the process of deciding whether to implement MECRA. The agency must determine whether the investment would expand the supply to levels that would lower wholesale natural gas prices and, in turn, electricity costs.
But the consultant, London Economics International LLC, found that the state’s plan to augment the natural gas supply wouldn’t be cost effective.
“As we will demonstrate in this report, the benefits to Maine are small because Maine simply does not use large amounts of gas and electricity,” the London Economics report says.
It found that Maine used only 7 percent of the gas consumed in New England in 2014, and that its electric energy consumption was about 9 percent of the total for the region.
As a result, if natural gas prices in Maine declined by 25 cents per million MBTUs – British thermal units, a standard measurement for volume of natural gas – it would reduce the cost of gas and energy in Maine by about $14.6 million a year.
The report then examined what the same price reduction would do in Massachusetts and found that it would create annual savings of $106.7 million.
“The benefits to Maine would be only about (one-seventh) of the benefits to Massachusetts,” it said.
A previous Maine study found that if natural gas prices in New England were closer to what other parts of the Northeast are paying, electric customers could save $1.5 billion a year, with $120 million of that savings in Maine. But the findings are controversial, and environmental groups say the region would be better off diversifying its energy supply with renewables rather than becoming more dependent on natural gas.
Portland attorney Anthony Buxton, who represents one of the natural gas companies vying for the MECRA contract, said the London Economics report is riddled with factual errors and faulty assumptions. It overestimates the amount of supply available to Maine on cold days while underestimating the demand for natural gas and the amount of money Mainers would save by not having to use more expensive sources of power such as oil and wood, Buxton said.
“Although the report is well-intended, it is nevertheless unfortunate,” he said. “First, there are mistakes which show that the authors do not know essential facts about New England and Maine.”
In Maine energy circles, London Economics is perhaps best known for a 2011 study on the financial impact of renewable portfolio standards, which require a certain share of power to come from sources such as wind. The study concluded that the standards, which are opposed by some Republican lawmakers, including Gov. Paul LePage, cost ratepayers very little, but could lead to more than $1 billion in investment and thousands of jobs.
The Conservation Law Foundation, a Boston-based nonprofit that opposes natural gas pipeline expansion in New England, said the London Economics report validates its position that boosting natural gas usage in the region is a bad idea.
“This report is further proof that using Maine ratepayer money to increase natural gas pipeline capacity makes no more economic sense than it does environmental sense,” foundation Vice President Greg Cunningham said in a written statement. “With Maine gas prices expected to drop by 25 percent in the coming years due to already planned gas capacity expansions, now is not the time for Maine or any other state to put consumers on the hook for further buildout of big, long-lived gas infrastructure. Such an investment would only serve to hinder, rather than help, our efforts to avoid the worst impacts of climate change.”
Maine Public Advocate Tim Schneider, charged with representing the interests of utility customers, said the report is a blow to the concept of Maine ratepayers facilitating natural gas expansion. Still, it is not the final word on the issue.
“The conclusions in the report are based on a number of assumptions about what the region’s energy future might look like, and different assumptions could reach different conclusions,” he said via email. “We and others will be looking into the reasonableness of these assumptions as the case continues.”
Both Schneider and Buxton noted that the report makes a stronger economic argument for regional coordination, rather than having the state act alone in its efforts to reduce energy costs.
“If Maine uses its authority as part of a larger regional effort, then it might be a reasonable course of action, notwithstanding the report’s conclusion that acting alone would not be beneficial,” Schneider said.
Staff Writer Tux Turkel contributed to this report.